RSA was one of the biggest risers on the FTSE 100 index this morning, with shares up more nearly 5 per cent, or 24.25p, to 519.25p. The stock was the sole blue chip riser yesterday, gaining on a day when the blue chip index dropped 4.7 per cent on talk that Zurich would still table a bid.

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‘We expect RSA's shares to respond favourably this morning with a deal now seeming inevitable, in our view,’ Shore Capital analyst Eamonn Flanagan said in a note to clients.

‘We await the possibility of a counter-bid from another continental European insurer,’ he added.

Zurich’s cash offer reflects an 11 per cent premium to RSA's closing price on Monday and a 26 per cent premium to the share price before Zurich announced its bid interest.

Shareholders will also receive a pending dividend payout worth 3.5p a share if the takeover goes ahead, lifting the overall return to £5.63billion.

RSA boss Hester is believed to be pushing for a price as high as 600p a share, but is facing pressure from investors not to reject a reasonable offer.

Zurich’s chief executive Martin Senn has recently reiterated that he does not want to overpay for the firm.

Augustin Eden research analyst at Accendo Markets said: ‘With M&A hype, the only bit of news that could be given a positive spin, evidently able to keep shares above water in the most inhospitable of conditions, traders will be welcoming a revised offer from Zurich as evidence the Swiss insurer is still serious about the deal.

‘RSA has cautioned that the situation is “still fluid,” but there’s not much else out there likely to get a bite at the moment.’

Hester was brought in at RSA at the beginning of last year to clean up the insurer's act after an accounting scandal at its Irish arm in 2013 took a big toll on the group.

The scandal resulted in several senior members of staff leaving the company, which subsequently issued a series of profit warnings.

Strategy: RSA boss Stephen Hester took over earlier this year in the wake of a torrid year for the insurer

But Hester’s strategy, which has involved a £775million rights issue, stripping back its Asian businesses and refocusing the group's UK operations, seems to be starting to pay off.

The insurer recently posted improved profits of £288million for the six months to June, up from £69million recorded at the same time last year.

Group operating profit also rose to £259million, up from £141million at the same stage.

The potential takeover is part of a wave of mergers sweeping through the insurance sector.

In April, Aviva sealed the industry’s biggest merger since 2000 with a £6.5billion deal to buy Friends Life.

In July, Swiss-held giant ACE announced an £18billion deal with US property insurer Chubb Corp.

That deal is the biggest-ever in the sector, and came only hours after an £11.4billion merger between US insurance broker Willis and pensions consultant Towers Watson was unveiled.